The dart-throwing chimp(s) index fund

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Naikansha
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The dart-throwing chimp(s) index fund

Postby Naikansha » Sun Sep 11, 2011 4:07 pm

As I see this image used by lots of people to debunk the idea of accurate forecasting (especially of the future of stocks), I tried to find information about whether this ever really happened. It does seem that chimps, at the time probably easily 'borrowed' from research labs, were actually taught to throw darts at a target. There seem to be two instances.

The first description comes from a political science blog of the same name:

...Raven, a female chimpanzee who, in 1999, “picked” a portfolio of 10 stocks by throwing darts at a board arrayed with the names of more than 100 Internet companies. MonkeyDex, an indexed fund based on Raven’s picks, wound up ranking among the top Internet funds that year with better than 200% growth. Since then, the phrase “dart-throwing chimp” has stuck in the lexicon of financial analysis as a knock on the “expert” analysts who were outperformed by Raven — and pretty much anyone else who makes a living by prognosticating.

comment: MonkeyDex, does it still exist?? Here's something from Bankrate archives 2000 (written by Daniel Jimenez):

(quote) Raven, who has her own Web site, showed up many of Wall Street's finest minds with a 213 percent gain for 1999. Had Raven been employed at a Wall Street mutual fund, her performance would rank her as the 22nd best money manager in the country, outperforming more than 6,000 Wall Street pros, according to the Internet Stock Review, creators of the MonkeyDex

Another event is also cited: a blindfolded chimp was apparently made to throw darts at the Wall Street Journal stock listing page.

Comment: Since then, a psychologist named Tetlock used the image to debunk theories of accurate prognostication. It seems his writings introduced the 'dart-throwing chimps' idea into finance.

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dave.d
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Postby dave.d » Sun Sep 11, 2011 7:16 pm

If you throw darts at the stock page, will you get disproportionately small value stocks? Before we conclude the chimps are skilled, we need to account for their factor loads ;)
Value-based allocation: recently 23% stocks @PE10=27 and real bond yields approx. zero

Naikansha
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Postby Naikansha » Sun Sep 11, 2011 8:41 pm

as she was only 6 yrs old, had not yet reached puberty, she had not begun her quest for alpha (males)

Oscarjrs
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Postby Oscarjrs » Mon Sep 12, 2011 8:37 am

So where can I find one of these monkeys?

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Dan Moroboshi
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Postby Dan Moroboshi » Mon Sep 12, 2011 8:55 am

Oscarjrs wrote:So where can I find one of these monkeys?


Now, look... chimps are not monkeys. They are apes.

You see, my friend, you can't do this alone. I don't mean to offend, but you don't even have a basic grasp of the terminology of finance.

That's why you need PRIMEape Associates.

We don't just limit ourselves to apes, you know. Monkeys (yes, I know I corrected you just now about using the term "monkey", I'm still right) tend to be better than apes at picking small cap stocks. Has something to do with their visual perception, or something - hey, I don't know, I'm not one of those primatologists, I'm on the investment and sales side, okay?

And did you know they don't have to throw darts? Orangutangs can't pick stocks for crap with darts, but they're geniuses with bocce balls. True story! Spider monkeys? Poo. Yep, poo. Don't ask.

Anyway, you don't just want any dart throwing primate. You want the best ones, selected by our proprietary screens for optimum performance. And all for a low, low two percent of AUM.

You want peanuts? Go with those boring index funds.

If you want to be better than second banana, go with PRIMEape Associates - Where Monkeys Make You Money™

(Yeah, the monkeys again. Ad guys. I'm still right.)

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JupiterJones
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Postby JupiterJones » Mon Sep 12, 2011 10:47 am

Dan Moroboshi wrote:That's why you need PRIMEape Associates.


LOL

:D

JJ
Stay on target...

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Taylor Larimore
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Boglehead monkeys

Postby Taylor Larimore » Mon Sep 12, 2011 11:21 am

Oscarjrs wrote:So where can I find one of these monkeys?


Hi Oscar:

We have one or two on the Bogleheads Forum who believe they can forecast the stock market. :roll:
"Simplicity is the master key to financial success." -- Jack Bogle

Naikansha
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DNA

Postby Naikansha » Mon Sep 12, 2011 11:35 am

Of course, it's all in the genes. chimps and humans share 98.4% genetic material. :roll:

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Higman
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Postby Higman » Mon Sep 12, 2011 11:54 am

Your dart thrower observation might best be explained with a quote from AAII's James B. Cloonan's book - "Maximum Return Minimum Risk":

"The 2000-2003 period in which the NASDAQ composite index was down 30% a year for three years ... was an up market for the average stock on the NASDAQ. The average stock was up 50% a year during that period. The bear market existed only for a few hundred technology stocks but their capitalization weight dominated the other 3,000 stocks on the NASDAQ index." "This is why a dart thrower should outperform the indexes ..."

Manbaerpig
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Postby Manbaerpig » Mon Sep 12, 2011 1:36 pm

my econ teacher (I took micro+macro on a whim) in undergrad mentioned a dart-throwing analogy a few times. maybe not the chimps, but I suspect the reference goes back far before 99 (I was in the class in 94)

natureexplorer
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Postby natureexplorer » Mon Sep 12, 2011 1:48 pm

The key is not the randomizer (monkey), but the size of the targets and which ones will be included. For example, will a small cap have the same size target a as large cap does?

Naikansha
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WSJ started it!

Postby Naikansha » Mon Sep 12, 2011 2:15 pm

You are right Manbaerpig, it did happen long before 1999. It seems the WSJ used their staffers beginning in 1988 to be the chimps; the contest went on for some time. Here's a link: http://www.automaticfinances.com/monkey-stock-picking/

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stratton
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Postby stratton » Mon Sep 12, 2011 6:29 pm

dave.d wrote:If you throw darts at the stock page, will you get disproportionately small value stocks? Before we conclude the chimps are skilled, we need to account for their factor loads ;)

If you're talking the typical S&P 500 or largest 1000 stock listings then an equal weight index would be a better benchmark.

Paul
...and then Buffy staked Edward. The end.

Manbaerpig
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Postby Manbaerpig » Mon Sep 12, 2011 8:05 pm

Eddington, 1929

... If I let my fingers wander idly over the keys of a typewriter it might happen that my screed made an intelligible sentence. If an army of monkeys were strumming on typewriters they might write all the books in the British Museum. The chance of their doing so is decidedly more favourable than the chance of the molecules returning to one half of the vessel.
A. S. Eddington. The Nature of the Physical World: The Gifford Lectures, 1927. New York: Macmillan, 1929, page 72.

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Dan Moroboshi
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Postby Dan Moroboshi » Mon Sep 12, 2011 9:11 pm

Manbaerpig wrote:Eddington, 1929

... If I let my fingers wander idly over the keys of a typewriter it might happen that my screed made an intelligible sentence. If an army of monkeys were strumming on typewriters they might write all the books in the British Museum. The chance of their doing so is decidedly more favourable than the chance of the molecules returning to one half of the vessel.
A. S. Eddington. The Nature of the Physical World: The Gifford Lectures, 1927. New York: Macmillan, 1929, page 72.


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dave.d
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Postby dave.d » Mon Sep 12, 2011 9:49 pm

stratton wrote:
dave.d wrote:If you throw darts at the stock page, will you get disproportionately small value stocks? Before we conclude the chimps are skilled, we need to account for their factor loads ;)

If you're talking the typical S&P 500 or largest 1000 stock listings then an equal weight index would be a better benchmark.

Paul

Exactly. And note, for example, that RSP has a significant size load compared to SPY or VFINX. The monkeys are cheating! Or chimps, whatever, sorry...
Value-based allocation: recently 23% stocks @PE10=27 and real bond yields approx. zero


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